Mar
24Disaster Insurance is still covering losses and reinsurance covering insurance, but there is advocacy for disaster preparedness including from Canada’s ICLR
At a St. Patrick’s Day party of all places, I happened to strike up a conversation with an adjustor for State Farm insurance. It turned out he was in charge of managing disaster claims, and that his territory was North America. Since the world had been experiencing a rash of disasters I idly asked: “So, which areas of North America are the worst… produce the largest number of insurance claims? Flooding… The Mississippi… St Louis area…?”
He paused, and then replied. “Well, this will surprise you, but the Omaha Nebraska, Council Bluffs Iowa area… hail… I mean it’s constant. It’s amazing how much hail they get.”
“Hmm… Yes, that does surprise me,” I replied.
“The next worst would be the tri-state area, Arkansas, Texas, and Louisiana,” he continued. “You know… where the three states all touch.”
“Little Rock?” I said.
“Well, south of that… Shreveport and across to Dallas… Winds…”
“Tornadoes…?”
“Well, sometimes, but mostly just winds. Now, we get a lot of calls from the Houston area, and of course South Florida… Miami, that’s the worst for flooding. I mean, they get hurricanes, but it’s not the winds, it’s the water. Just a tropical storm with heavy rains causes havoc. The water has no where to go. Let’s face it, Florida, particularly south Florida, is mostly below sea level.”
Disaster Insurance
When the experts talk of claims for property insurance, the numbers generally involve thousands to millions of dollars. But when you talk disaster insurance, the numbers are often in the billions. And the deductibles for disaster insurance, unlike for property insurance are usually a percentage of the insured value, not a fixed amount. So how do insurance companies, nations and individuals cover the costs?
- Insurance Companies charge fees and spread the risks using reinsurance companies.
- Nations develop disaster funds paid for through general and short term taxes.
- Individuals pay the premiums, taxes, and deductibles and know and avoid situations where the risks aren’t covered.
The Economic Impact of Disasters
In horse racing terminology, a trifecta- a term often used singularly to describe the 2011 disasters in Japan- is a parimutuel bet in which the bettor must predict which horses will finish first, second, and third in exact order. For the time being, here were the bets of the experts on the early 2011 world disasters.
The British newspaper, the ‘Telegraph’ reported that “estimates from risk modeling agency AIR” put claims from… (the) Japanese earthquake at up to $35bn – although this figure (was expected) to grow significantly once tsunami-related loss estimates (were) added…” It further added that “claims from (the) New Zealand earthquake could cost the industry a further $8bn according to AIR, while losses from flooding in Australia (were) estimated to reach up to $6bn.” It concluded that “most of the losses (would) be absorbed by global reinsurers and companies operating in the Lloyd’s of London market.”
The Past Patterns and Future Prospects
When I first began teaching high school physical geography, a reoccurring theme was the coming of an ice age. A bad winter got everyone thinking it was coming. Then the focus turned to global warming. Again, a significantly hot season, particularly a warm winter, had everyone talking as they enjoyed their golf in December and pounded their fists in support of global warming. The reality is that both have occurred in geologic history; many ice ages with warming periods of several thousand of years in between. The question is, if I was a reinsurance company like Warren Buffet’s Berkshire Hathaway and wielding billion-dollar arsenals to bet on the outcome of future events would I bet on and insure the primary insurance companies covering the damages from, for instance a sudden reoccurrence of an ice age, or the damages directly stemming from global warming? Which would appear to be the lowest risk; the least likelihood of paying out a lot to cover claims from the fees money used to invest and make more money?
Likewise, in geologic history there have always been disasters- earthquakes, hurricanes, tsunamis, forest fires, tornados, ice storms and severe rain storms – although admittedly not always disaster insurance. I suspect, however, that every reinsurance company is now reassessing its risk appetite after the 2011 events in Japan, New Zealand and Australia. And imagine the reactions after the big man-made environmental disasters. Bruce Watson of ‘Daily Finance’, the AOL Money and Finance Site compiled a list of the ten biggest environmental payouts, the top three being the BP oil spill in the Gulf of Mexico, the Exxon Valdez oil spill in Alaska’s Prince William Sound, and the Union Carbide methyl isocyanate gas flood in Bhopal India.
In response to the possibility of catastrophic losses in coastal disasters, for instance, Risk Market News reported that “in 2007 South Carolina passed the Omnibus Coastal Property Insurance Reform Act which created a number of incentives for insurance companies to write policies in the state’s coastal region and for homeowners to retrofit their homes against windstorm”. Similarly, in response, in Canada the Institute for Catastrophic Loss Reduction (ICLR) is helping to raise public awareness and advocating for a national Natural Disaster Reduction Plan.
Advocacy for Disaster Preparedness
The ICLR is affiliated with the University of Western Ontario in London, and consists of institute and researchers associates in the fields of wind and seismic engineering, atmospheric science, risk perception, hydrology, economics, geography, health sciences, and public policy. In its attempt to help home and small business owners reduce the risk of injury, damage and interruption of business due to such hazards as severe wind, hail, earthquakes, flood, and wildfire, it suggested three key priorities:
- vulnerability of public infrastructure
- concerns about preparedness of federal government
- need to retrofit older homes and buildings
There are a lot of books on the market about disaster preparedness, including ‘Disaster for Dummies’. But Marty Augustine’s book, ‘At Ground Zero’ which includes learning about “the importance of making an emergency supply kit, how to create an emergency plan for your family or business, emergency response to disasters, how to handle disaster stress, historical disasters, disaster terminology, and general safety tips” is interesting because of his perspective as a Kansas City area police officer and safety educator.
